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Sony, Microsoft moving too slow in online space - Tencent

Chinese internet giant Tencent has said that Sony and Microsoft are moving too slowly in the online space and working with a product business that's missing multiple revenue-generating opportunities.

Speaking at GDC Europe today, Bo Wang, vice president of Tencent Games, said that while online console gaming is growing, the basic business of selling discs and some additional content online is too expensive and misses opportunities to take smaller amounts of money from willing customers.

"Sony and Microsoft are moving to the online space but they're not moving fast enough," said Wang. "By nature the console is limited. The upgrade cycle is quicker for a PC than for console. It can catch up and surpass the performance of consoles."

"Online gaming is more creative in making more money for the developer and the publisher," he added.

Traditional boxed product takes over two years to make and only gets a month of promotional support at retail, offered Wang, usually around Christmas time when there's multiple competing products.

"If you price it at $50 but the customer only has $49 he can't afford it. But that's good money, we should take it. If he has $50 in February he takes his money to the retailer and he can't find the game anymore."

"The pricing structure of traditional games business is fundamentally flawed. We give away money in development and we don't maximise the return. We should all take all the consumers money."

Working in the Chinese online gaming market has taught Tencent the value of micro-transactions and product as a service.

The company has a market cap of $75 million and revenues of $1.8 billion. Asia accounts for 70 per cent of the online gaming market, said Wang, compared to 18 per cent for Europe and the same in North America.

"People don't have enough money to afford expensive entertainment but they do have a lot of time," he said.

Tencent's business model is being adapted in the games space, most notably with companies like Zynga and Playdom, who put out games and adapt them quickly based on user's meta data.

That constant interaction with players is crucial, said Wang, "you can optimise your game in incorporate new content into an expansion. If you've made a mistake you get a second chance to fix it."

In return, Wang said Tencent Games enjoy an online life of between 5-7 years on average. "There's no inventory issues, it's easy to recoup the development budget" and the peak of the game's lifecycle usually happens around two years after it was originally released.

"We don't need to pay the retailer, we don't need to pay the console maker royalties," he added. "All that money we can spend elsewhere to provide more compelling content and it's a return that we can all profit from."

Chinese online games company enjoy a profit margin of around 45 per cent, he added. GDC Europe is taking place across the next three days in Cologne, Germany.

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9 Comments

Whilst Digital is the future. There is still a attractive place for packaged retail products and alternate flash based/web and digital products. Not one product is superior to the other. Digital lacks the "first date" experience of collective memorabilia of a packaged retail product.

Some interesting points although comparing the development cycle of simple online web-based games to more complex console titles is comparing apples to oranges...especially when it appears as though Tencent has no experience creating stand-alone console games.

Depending on logistics, it could it be possible to achieve a "first date" with an online purchase/preorder (except for Australia of course). I think that what attracks people for the titles that possess a core fan base is the " i was at midnight launch" event lable, and we all know how "insignifficant" a niche market that is considered.

Recently the EB store in our central shopping centre has disapered, possible due to the openning of JB HI-Fi
9 mounths earlier closer to the food court... the price concious shopper would rather just get a title at JB than have to go to JB get their price then quote it at EB, moreover rather than get in thier car and go get it they would opt for an online purchase and delivery at a same/cheaper price if available.